This article was originally posted on the Tech North website.
Sheffield-based Tutorful recently raised £150,000 for a 10 percent stake in its online tuition marketplace, in an equity crowdfunding campaign which was completed in just four days. It has been hailed as the fastest ed-tech raise in the history of Crowdcube.
Here’s Tutorful co-founder Scott Woodley’s story and advice for startups thinking of taking the equity crowdfunding route.
Raising funding for your startup is a daunting task. I would equate it to being an archer trying to hit a moving target, which is constantly changing size, on a windy day, with the wind changing direction, while ‘bigger boys’ are pushing you, and a princess is blowing in your ear.
Okay, so the last part is from ‘Robin Hood, Prince of Thieves,’ but, in other words, it can feel like an impossible task. It’s not.
Mark and I have been friends since we were 14 years old, and this is our first business. We have little experience and we’ve often been at a point where we truly haven’t known what to do, especially in regards to gaining investment. We hope that by sharing our story, we can help you to feel more confident and hit your own funding target.
We launched Tutorful.co.uk in August last year. The site is as an online marketplace for students to find, message and book local tutors for private one-to-one tuition. After initially having the site built by a contractor using our own savings, we left our jobs to work full-time on the project – setting sail for a life living on baked beans.
All went better than we’d hoped and by January we had expanded to recruit tutors and students in many cities across the North of England, with a substantial number of lessons being booked on a weekly basis. The site was working, the business model was proven (as much as possible), and we were starting to generate decent revenue. We were ready to scale.
We were fortunate in having a positive return on our advertising investment, and were in a position where we could grow the business gradually without additional funding. While working from a bedroom in my house, eating into our savings and generally not being able to do much wasn’t particularly pleasant, we knew that continuing to bootstrap would allow us to eventually secure a decent salary and own a respectable business.
So, why seek funding? Why put extra pressure on ourselves when we didn’t need to? Why invest so much time into seeking funding when it felt so intimidating? These are questions we seriously discussed (and, on difficult days, still discuss now!).
Ultimately, both of us had embarked on setting up a business for the challenge, and lowering our aims didn’t feel like the right thing to do. We’re both ambitious, and wanted to move quickly. Furthermore, ambitious or not, the industry wasn’t standing still – we had to move faster than our competitors to stay ahead of the game. Funding would allow us to do that.
The conversation thus moved on to discussing how much funding we needed and where we could get it from?
Our funding strategy
First of all, how much to raise. Our starting point was thinking about here we wanted to be in 12 months time and how much money we needed to get there. This was back of the envelope (or beer mat) maths, and coming up with some rough figures. We could get anything from £75,000 to £300,000! It wasn’t a precise approach. We’d added a bit for the fact that there are always additional expenses, and subtracted a little bit because when the numbers just felt too high.
The truth is, that making this decision was really difficult and ultimately came down to how much we thought we needed, how much we thought we could get and, pretty influentially, the tax breaks on offer for investors. The £150,000 cut off between EIS and SEIS seemed to roughly match our needs and the additional benefits for SEIS seemed significant for investors and would reduce the amount of equity they would expect in return for their money.
How much to value our company at felt like finger in the air stuff at times. We found the best approach was to ask more experienced founders, explain our situation and get their advice. Responses ranged dramatically, with many contradictory opinions. At one point we met consecutively with four different sets of angels, who each pointed us in different directions. The wisdom of the crowd seemed the way to go, aggregating the advice we received and letting that be our starting point.
Tutor’s page for prospective tutors.
We ended up settling on a valuation of £150,000 for a 10 percent equity share, which we felt reflected the current size of our business, the size of the industry, our rate of growth, and the potential future valuation we could secure.
We ultimately wanted a figure which was fair to ourselves and fair to investors, as that would allow us to raise funds relatively quickly, whilst also giving us breathing space to grow sensibly, without feeling the pressure of too hefty a valuation which we would struggle to advance from in the next twelve months. We created a pitch deck and started to finalise the business plan.
In the midst of working all of this out, however, we were invited to pitch to be part of an accelerator program. This was a really attractive prospect, not least for the fact that it would involve living in a new city for 13 weeks, working with some really cool people and getting to travel to the East Coast of America, but also for the guidance on offer.
Accelerators provide angel mentoring and are a great way of meeting many potential investors, which we thought might save us a substantial amount of time in securing our full raise. In the end, it was tough to turn down but the maths just didn’t add up. We were offered £17,000 for 8 percent equity, valuing our business at just over £200,000, which was miles below our own valuation.
Naively, we had initially tried to contact venture capital firms by scouring the web, but quickly realised that our company wasn’t ready for this type of investment – we weren’t turning over enough, nor did we have an exceptionally technical product. Angel investment emerged as the most viable option and we had a huge stroke of luck.
On receiving a call regarding a potential collaboration with another company, the caller explained how he had recently invested in another educational company, so I asked if he would be happy to meet and discuss our pitch. He agreed to a meeting and as a result agreed to come in as our lead investor.
Following on from this, Mark’s previous role as an Investment Analyst for a investment firm was a massive help. He had contacts who were already in the realm of investment and who knew Mark’s credentials. From these contacts we were able to grow the amount of investment committed, and it was then a case of deciding how best to bring those investors together.
Wisdom of the crowd(funding)
After contemplating organising a private collaboration, we felt that an equity crowdfunding campaign would remove the hassle of negotiating separate legal contracts and benefit the business through increased exposure to potential clients. We researched the fees applied by various sites, and ultimately applied to Crowdcube.
Once we’d passed through their lengthy, but necessary, due diligence checks, we were accepted on to their speed track program, due to the easy-to-understand nature of our business.
Crowdfunding means having an online pitch through which anyone who signs up to the site can invest from £10 to the full amount requested. It’s basically a giant totaliser, and once we went live we were forever clicking refresh! We organised a social media campaign and sought as much coverage as we could to promote the raise and funnel as many investors to our pitch.
Tutorful’s Crowdcube page
We spoke to many people about how to best organise our campaign and here are the best tips we were given:
Begin posting at least two weeks before the raise to build a buzz. Email your existing users or clients to excite them about the chance to own part of the company they have worked with already. If they’re already paying you, there’s a good chance they have a good opinion of your site and may like to invest.
Decide on your key message. Are you growing rapidly? Are you solving an obvious social problem? Is your brand cool? Thinking about this will help you to determine what will most excite investors: the potential return, the social good it provides or the excitement of being associated with your brand – you’ll want to touch on all, but having a core message will help you create a continuous message.
There are many websites that cover crowdfunding, so contact them and get listed. Contact local media outlets, who will be happy to promote a business in the region. Similarly, write a press release that includes the story itself (about 250 words), key company information (company name, website, email, phone, founders’ names), your company logo and a photo, and send this to sites/publications covering your sector.
Once the raise began, we made sure that each angel who had pre-committed was ready to invest to build our momentum. We continually posted when we hit various landmarks, as we wanted investors to feel that time was running out to be part of our story.
While doing this, we bombarded our LinkedIn contacts, asked them to retweet our messages and focussed on other users who had the most followers themselves. We were amazed to find that we completed the raise in just four days.
We are delighted to have secured the funding we required and are now using the money to put into place the plans we’d laid out to investors. Like most things in life, looking back it feels completely natural to have arrived at the position we have and to have gone down the path we have but it never felt like that at the time.
I hope our tale serves as a useful insight to any of you who might be on that bumpy, winding road, and wish you the best of luck moving forward.
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